Iraqi government restrictions on security contractor Blackwater USA could mean a range of complications for US involvement in the country--potentially even undermining current plans to remove some troops on the ground, reports the Wall Street Journal in a story by August Cole and Neil King, Jr.

After an incident on Sunday in which Blackwater security personnel killed Baghdad civilians during a fight with insurgents, the government of Iraq announced that it plans to deny the firm permission to continue operations.

"The incident may increase strains between the Bush administration and the government of Prime Minister Nouri al-Maliki," said the Journal. "The State Department relies heavily on Blackwater to guard its diplomatic compound within Iraq's Green Zone and also to provide security for U.S. diplomats as they travel around Iraq. The work often calls for Blackwater to draw on its fleet of armed helicopters, which give it an arsenal that other security contractors lack."

Coming at an "awkward time" for the White House, according to the Journal, the incident follows on the heels of an announcement last week that the US plans to withdraw as many as 30,000 troops by July.

"As the U.S. diminishes its military footprint," Cole and King write, "it is almost certain to rely more heavily on private-security companies to guard the tens of thousands of nonmilitary U.S. personnel working in Iraq."

"Security contractors, who are more lightly armed than their American military counterparts, play an important role protecting not just U.S. officials but also employees of the many companies working on rebuilding Iraq's infrastructure," continued the Journal."Blackwater is one of the largest security contractors in Iraq, with some 1,000 contractors there, most of them American. Picking up any slack should Blackwater's operations be interrupted or cease would be a tall order for rivals."

"The reason there is such a strong business for personal security details is that the United States military and the Diplomatic Security Service don't have the manpower to fulfill the requirement," Ray DuBois, a former undersecretary of the Army, told the paper.

"We haven't received any official word on this. We have only seen this in the press," Blackwater spokeswoman Anne Tyrrell told the Journal, saying the company had yet receive word about its license from Iraq's Interior Ministry. Tyrell confirmed some guards were involved in the fight, although she denied reports that the firm's helicopters "opened fire."

"Iraq can be a very difficult place for our diplomats to operate in, and certainly people need to realize the environment in which our people operate," a spokesman for the State Department said last week.